Super contributions on the way up (hopefully)

4 Nov 2011 |

Legislation was introduced into federal parliament this week to increase compulsory employer super guarantee contributions from 9 per cent to 12 per cent. This will be done in small increments over the next seven years if the legislation passes both houses of parliament. As part of the legislation the current age limit of 75 for making super contributions would be removed.

Q. In the event that an employer fails to comply with the super guarantee rules and a penalty is applied, where does the extra money go?

A. The administration charge of $20 per employee, when an employer does not meet their superannuation guarantee responsibilities, is a fee retained by the Australia taxation office. The interest charge that forms a part of the SGC penalty is forwarded to the employee’s superannuation fund.

Q. My eldest daughter did some summer vacation work last year that ended up with her having $540 in to Hostplus. She is a uni student and has since developed a cash-in-hand tutoring line of work and has no intention of resuming part-time/vacation work in the hospitality industry.

A recent super statement showed earnings of $1.42 and charges of $74. In other words unless there is a stellar performance by the fund in the next couple of years, her residual will be gone in no time. The $74 in fees on a $540 account seems very expensive. Is it possible to have accounts paid out that are inactive, going backwards and involve small amounts?

A. A member can access their superannuation when they have not reached retirement age when the superannuation benefit is less than $200. The fees levied by your daughter’s superannuation fund do not appear to be excessive but they should not have exceeded the income earned by the fund.

There is protection in the superannuation regulations for superannuation accounts with less than $1000. Under these regulations a super fund cannot charge an administration fee that exceeds the income earned by the fund.

In addition to an administration fee a member’s account can also decrease because of income tax payable on employer contributions, and because of insurance premiums related to the member. Your daughter should check with Hostplus to see if insurance is part of her account and, if she doesn’t want the insurance and the fund to go backwards, request that this insurance cover be removed.

Q. I am 73 years old and have a SMSF and approx $400,000 in an industry super fund. The SMSF is in pension mode whilst the industry super fund is still in accumulation mode.
As the returns on the SMSF are considerably better than those from the Industry fund I am considering rolling the Industry Fund into my SMSF. If I do this, do the proceeds of the Industry fund automatically have to go into pension mode, or is there some way it can remain in accumulation mode?

A. If you rolled over the balance in the industry fund into your self managed super fund it would not automatically go into pension phase. Instead it would go into an accumulation account in the fund. It would make sense to set up a new bank account that the proceeds of the rollover would be banked into.

By keeping the rollover funds in the accumulation account you would not be forced to pay a minimum pension that could exceed the income earned by the investments of the funds. The downside of not having these rollover funds in pension phase is the tax that will be payable on the income earned by investments allocated to the accumulation account.
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